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Rent Seeking and the Inefficiency of Non-Market Allocations

Abstract: When bureaucratic decisions are influenced by lobbying or other rent seeking activities, there can be a substantial waste of real resources. This paper presents a simple classroom game in which students compete for a prize or "license" on the basis of costly lobbying expenditures. This game illustrates the extent to which rents can be dissipated in non-market allocations. The exercise can be used to motivate discussions of the efficiency and fairness properties of lotteries, auctions, and effort-based contests.